India Mobile Carriers Call for Higher Termination Costs

You might find it odd when a firm asks its regulators to increase a cost of doing business.

But that is what is happening in India, where the Telecom Regulatory Authority of India cut interconnect charges to 14 paise a minute from 20 paise and completely eliminated fees on calls terminating and originating from landlines.

The Cellular Operators' Association of India wants a fee increase. That might seem incongruous. Only Reliance Jio opposes higher fees.

There are sound business reasons for each set of positions. Since no network covers a whole country, to say nothing of a whole region, continent or the whole globe, service providers routinely pay interconnect fees to the partners who terminate their customer calls.

In one sense, there arguably is no net impact on revenue or cost when two carriers exchange an equal amount of traffic, and the tariffs are comparable.

So long as tariffs are the same for all carriers terminating traffic, it doesn’t actually make a net financial difference that carrier A sends 100 units of traffic to carrier B, and carrier B sends 100 units of traffic to carrier A.

There are advantages, though. Though such transactions result in no “net” bottom line impact (costs and revenues are at the same level), each carrier can book the termination charges as “revenue.” That is helpful.

And sometimes, carriers actually can make genuine net gains in revenue. That happens when traffic flows between any two networks are highly unequal. That typically happens for carriers of unequal size, or networks whose customers are call centers or Internet service providers.

In the case of networks of unequal size, the odds are that many more people on the smaller network are going to be calling out to people on the bigger network (and thus incurring termination charges) than receiving calls from the bigger network.

A call center, by definition, will receive far more traffic than it sends (assuming it is a standard inbound customer service center). And a customer-facing  ISP traditionally receives more traffic than it sends.

And those are situations where the volume of exchanged traffic can make a difference.

As always, a firm’s concrete financial interests dictate positions on policy questions. Reliance Jio, as a smaller upstart, will definitely be sending more traffic than it receives. So lower termination costs are in its financial interests.  

The bigger carriers stand to benefit, since they will be getting more calls from Reliance Jio than giving traffic to Reliance Jio.

So though it might seem odd, the call for higher termination costs is rational for the bigger mobile service providers, an disadvantageous for Reliance Jio.